The ASEAN Economic Community (AEC 2015) took effect in December. AEC will make it easier to invest in Southeast Asia, but there’s still a lot of work before ASEAN realizes the full economic, social, and trade benefits.
A research report from Ernst & Young (EY) named “Trade Secrets: ASEAN Economic Community” listed five important areas for countries in Southeast Asia to improve on. These are infrastructure improvement, labor mobility, financial integration, tax code harmonization, and effectiveness of implementation.
“More than ever, policymakers and businesses across ASEAN need to work closely together and share best practices as implementation moves into full play across the region,” according to Mildred Tan, EY’s Government and Public Sector Leader for the ASEAN region.
Tan said most goals for AEC implementation have already been met. However, he added that full economic integration will need more cooperation between the private sector and governments.
Infrastructure Projects for AEC 2015
Southeast Asia’s roads, railways and other infrastructure will be critical to the success of the ASEAN Economic Community. AEC 2015’s blueprint focuses on better connections in the energy and transport sectors.
With rich resources and a population of over 600 million, more efficient movement of people and products should allow greater economic growth.
Individual countries have made progress in this area. But differences between nations slow the progress of larger, regional infrastructure projects. These include different national government priorities, lack of access to funding, land expropriation issues, and more setbacks.
Development in ASEAN was prioritized based on constraints and other issues faced by individual governments in the past. As such, better coordination throughout the region is the best way to meet infrastructure needs and make the AEC a success.
Furthermore, the report listed the conditions for success with regards to ASEAN’s infrastructure. They include setting up more public-private partnerships, centralizing government processes, along with helping firms manage large infrastructure projects.
Financial Integration and Stock Market Connectivity
The AEC’s purpose is to smooth regional investment, connect financial markets, and eliminate capital movement restrictions. It has a goal of increasing trade and investment while promoting the 10-nation bloc as a single destination to the world.
However, countries in ASEAN are each at a different stage of development. Achieving financial integration between all members is arguably the most challenging part of AEC 2015 because of this.
ASEAN must quickly make progress in three areas to meet its goals of financial integration. These are harmonization of payment and settlement systems, financial services liberalization, and capital account liberalization.
To develop an integrated banking system, EY’s report suggested a dual-track implementation based on the financial development stage of each country. Indonesia, Malaysia, Philippines, Singapore and Thailand would proceed on a faster track. Meanwhile, Brunei, Cambodia, Laos, Myanmar, and Vietnam would move at a slower pace.
Liew Nam Soon, EY’s ASEAN Managing Partner said: “This dual-track implementation of the banking integration plan can mitigate the risk of excessive deregulation.”
“ASEAN should focus on developing banking services that matter for the real economy. Not whether ASEAN banks will be able to become internationally leading banks.”
Finally, as for stock market connectivity, ASEAN Exchanges is a project between seven countries in Southeast Asia. The platform will let investors buy stocks throughout ASEAN using their local stock broker through the ASEAN trading link. Traders can access all of Southeast Asia’s exchanges through a single account in any of the seven countries.
All countries which joined the link promised to connect their stock exchanges by the end of 2015. It seems like not all members kept their promise though.
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